Govt Forms Expert Committee To Recommend Methods To Increase VC/PE Investments

According to a circular released by the Ministry of Finance on September 13, the government has formed an expert committee to recommend measures to increase venture capital and private equity (VC/PE) investments.

M Damodaran, the former chairman of the Securities and Exchange Board of India, will lead the six-member panel (SEBI).

According to the circular, the committee will "comprehensively study, using a systems approach, the end-to-end frictions and potential accelerants from regulatory policy and taxation to enhance ease of investing and to encourage investments in India."

The panel will also "review issues, compliances, and suggest simplifications and changes' ' to further accelerate the growth of alternative capital in the VC/PE industry, according to the statement.

While presenting the Union Budget for fiscal year 2022-23, Finance Minister Nirmala Sitharaman stated that the government was considering forming a committee to boost PE/VC investments and address industry concerns.

Foreign investors' concerns have included paying a higher tax rate than domestic investors and not being able to directly list their portfolio firms abroad. Currently, Indian firms can only list abroad via depository receipts, a less liquid proxy for shares that are less appealing to investors.

According to the circular, the Damodaran-led committee has also been asked to suggest measures to "further accelerate investments into start-ups and sunrise sectors," as well as "forward looking measures and future ready regulatory practises," in addition to studying and emulating global best practises.

According to an EY analysis, companies raised $77 billion in venture capital and private equity in 2021, up more than 60% from 2020 and up 154 percent if Reliance Jio's remarkable fundraising spree is included.

Internet startups in particular drove the investment spike, with 43 unicorns-private companies valued at more than a billion dollars-in 2021 alone, compared to a previous single-year high of 11.

The most recent figures, however, show a slowing in the rate of PE/VC investments. According to a report provided by industry organisation IVCA and EY, investments fell by 80% to $2.2 billion in August 2022, a 19-month low. In July 2022, venture funds invested $4.1 billion, whereas the same figure stood at $11.2 billion in August 2021.